Foster’s, the iconic Australian beer brand is going through something of a revival of late. Gone are the days when Foster’s was the premiere and iconic Formula One sponsor, or a name eponymous to Australian barbies and way of life – no, today Foster’s is the corporate agent looking for a bit of market action. A bit of a change from the good ol’ larrikin image of yesteryear but so be it. The world is changing and so is Foster’s.As it turns out, Foster’s isn’t too happy with some of its past market activity, notably the 2005 acquisition of the Southcorp wine brands label. At the time, this was considered to be both “Strategically and Financially Compelling“, creating a new owner of the “‘Brand Australia’ in the beverage category“. Well, come half a decade later, a glut in grape production, a surging Aussie dollar, and the case appears somewhat less compelling.
However, this isn’t to say that the acquisition wasn’t performed with precision and skill, instead it is a more mechanical review of the current balance sheet opportunities that the acquisition provides. Indeed, the world has changed, but Foster’s stable of wines have actually performed (albeit not as well as it beer divisions), what is about to change, however, is the distribution and organisation of Foster’s and, potentially, the very brand name that came to dominate the Australian alcoholic beverage industry.
SABMiller, the british beverage giant has now expressed strong interest for Foster’s. Oh, wait, that’s not quite right, SABMiller is interested in Carlton United Breweries (CUB). The thing is, Foster’s was already planning a de-merger and spin-off of its entire wine division: now renamed Treasuries Wine Estates, only surprise surprise, instead of getting bids above offer for its newly spun-off wine group, it is now getting hostile courting for its core beer divisions… Or in other words, it’s potentially bye-bye Foster’s, hello SABMiller Carlton and, somewhere along the way, back-to 2005 for some treasured wine estates.
The problem with making an undervalued company such as Foster’s more attractive to the market by, for example, spinning-off underperforming divisions is that it tends to make the company that much more attractive to the market. Confused? Well, let’s put it this way, you’re about to go out for a night on the town, you make sure that your partner looks stunning so that he/she can make you look great but, next thing you know, he/she just found a better partner than you and who is highly impressed by her/his new appealing image, hmm…
Well, the good news is, from a shareholder perspective, action or no-action, pricing should improve over the underlying. As a matter of fact, the best way to sex-up a share price is to have it engage in the M&A tango. The mere act of dancing is enough to get everyones head turning – regardless of whether the final rose in mouth pass-over move is cleanly executed or not. So may the show go on, and clearly, for any spectator, even sober, this should be an exciting few months for Australian beers and wines.
- Background Links
Asahi Group – supposedly looking at a counter-bid for CUB
Cerberus Capital Management LP – behind one private equity bid for Treasury Wine Estates
Foster’s Wine Portfolio
Bloomberg Article on Recent rejected Cerberus bid
Wikipedia Page on Mergers and Acquisition
Tango Scene – Schwarzenegger style